2020 outlook: Real estate

Amid a changing economic landscape, we're seeing new property segments emerge.

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Key takeaways

  • Generational shifts and a changing economic landscape have transformed the real estate investment trust (REIT) market in recent years.
  • Traditional REIT segments such as retail, apartments, and offices are giving way to new and emerging categories, including single-family home rentals and data centers.
  • We're paying close attention to these shifts, evaluating new opportunities and assessing which traditional REITs are best-positioned in an evolving world.

The real estate investment trust (REIT) market has shifted dramatically over the past decade. In 2010, 80% of the market was focused on core property types—retail, apartment, office, and industrial buildings. Today, however, that figure stands at only about 40%, by our calculation, with new and emerging real estate categories making up the rest.

Even though not all sub-industries are broken out by data providers, one can still see that the REIT market has grown much more diverse over time. For instance, we now have REITs devoted to timberlands, data centers, single-family home rentals, and new types of health care properties. Such newer categories have benefited from strong long-term demand growth, property-price appreciation, and a surge of capital-market activity that has boosted growth both organically (via higher cash flows) and by fueling acquisition and development projects.

These shifts in the REIT market have tracked the generational changes driving the US economy—in particular, the technological disruption that is modifying not only how we live our lives but even the spaces we occupy. For example, the expansion of e-commerce has hurt traditional retail real estate owners, whose commercial tenants are struggling to respond to heightened competition from online vendors. Another example: Hotel and lodging REITs now face a more challenging business environment because of the impact of short-term rental agencies such as Airbnb.

We pay close attention to the shifting economic landscape. We're continually evaluating these new and emerging REIT categories on a case-by-case basis, as well as revisiting the more traditional REIT sectors to determine which of those are most likely to survive and thrive in this fast-changing world.

Next steps to consider

Research the Fidelity® Real Estate Investment Portfolio (FRESX).

Get the details on the lineup of mutual funds.

Go back to the full 2020 sector outlook.

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